Markets & Finance

Will Icahn Nail WCI?

March 13, 2007

The homebuilder's shares soared Tuesday after the billionaire investor indicated he may be willing to buy the company

As the homebuilder WCI Communities (WCI) struggles for solutions to its recent financial troubles, shareholder Carl Icahn has been pushing for change. The billionaire investor made more noises on Mar. 13 and said he would be willing to buy the company for a price that would value it at roughly $923 million.

WCI had announced on Feb. 12 that it hired Goldman Sachs to help it figure out potential ways to maximize its value to shareholders, including a possible sale. Icahn, who held 14.6% of the company's shares, soon announced that he and nine others wanted seats on WCI's board, according to a Securities and Exchange Commission filing.

On Feb. 16 WCI said that Icahn had repeatedly asked for preferential treatment and refused an invitation to join the board as a participant in its discussions, while protesting that his plan to take seats on the board is "highly disruptive to our company and not in the best interests of all our shareholders." WCI also recently established a "poison pill" to fend off the risk of hostile takeover.

Now Icahn and his affiliated entities, High River Limited Partnership and entities managed by Icahn Management LP, are saying they would pay $22 per share for WCI's stock, contingent on the redemption of the poison pill. Icahn has not yet filed a formal offer with the Securities and Exchange Commission, but said he intends to initiate a deal in a statement distributed to the media on Mar. 13. Icahn also noted in the statement that WCI's board and CEO have said more than once that now is not the time to sell the company - "one of the very few times that management has been correct about anything," Icahn said in his statement.

WCI's representative Steve Zenker said the company has not received any formal offer but declined further comment.

"We think the offer, which is near our fair value estimate, is a decent one, given the extremely soft conditions in the company's predominantly Florida-based business," Morningstar analyst Eric Landry said in a research note.

WCI has heavy exposure to Florida, which Morningstar calls "probably the most overbuilt condo market in the country." The homebuilder has been battling for its financial survival as housing prices fall and growing numbers of its customers cancel their orders.

"[CEO Jerry] Starkey and the current board are not qualified to navigate WCI through the difficult industry conditions that lie ahead," Icahn said in his statement. "Additionally, mergers, including the possible sale of the company in the future at the right time and price, may be overlooked by the current board."

Hopeful investors bid up WCI's shares 14.7% to $21.76 per share in afternoon trading on March 13 after the news.